Johnson v. Bruzek
| Citation | 172 N.W. 700,142 Minn. 454 |
| Decision Date | 29 May 1919 |
| Docket Number | 21,212 |
| Parties | JOHN O. JOHNSON AND ANOTHER v. JACOB J. BRUZEK |
| Court | Supreme Court of Minnesota (US) |
Action transferred to the district court for Steele county to recover $153.77 upon a book account. The facts are stated in the opinion. The case was tried before Childress, J., who made findings and ordered judgment in favor of plaintiffs for the amount demanded. From an order denying his motion for a new trial, defendant appealed. Reversed with directions to amend the conclusions of law.
Partnership -- assignment for benefit of creditors -- sale of assets to one partner.
1. A common law assignment for the benefit of creditors made by copartners dissolves the partnership. After dissolution copartners occupy a fiduciary relation to one another while winding up the affairs of the partnership and making distribution of partnership effects, but are not disqualified because of their relationship from individually purchasing the assets of the firm when offered for sale by their assignee. If there was no fraud or collusion, a sale so made to one partner cannot be questioned by the others.
Partnership -- sale of good will.
2. The good will of a business is property, tangible only as an incident of, or as connected with a going concern, and is not susceptible of being disposed of independently. It passes to the purchaser of the assets of a partnership at an assignee's sale, although not expressly mentioned, where all such assets have been transferred.
Partnership -- evidence.
3. The evidence shows that the sale of partnership property by an assignee for the benefit of creditors of the former copartners was fairly made.
Partnership.
4. The fact that profits realized from the conduct of the business by such purchasers were used to pay off the original indebtedness of the firm, does not tend to prove fraud or collusion in connection with the sale.
Partnership -- action against one partner on book account.
5. An action on a book account owing by one partner to the firm and included in the transfer of its assets to his former copartners, cannot be defeated on the ground that it grew out of partnership transactions and that the business has not been wound up.
Partnership -- payment.
6. The court having found that such account was paid while the action was pending, it was error to order judgment for plaintiffs for the amount thereof.
Moonan & Moonan and E. W. Komarek, for appellant.
Roy H Currie, for respondent.
Action on a book account. Defendant counterclaimed and demanded an accounting. The findings were in plaintiffs' favor. The appeal is from an order denying a new trial.
The parties became copartners in 1912 and thereafter conducted a general store at Blooming Prairie under the name of "Farmers Store." On January 5, 1916, they transferred to one Galbraith, in trust for their creditors all their property, with certain exceptions of no consequence here. The instrument by which the transfer was made provided that Galbraith should convert the property into money and pay the claims of the creditors, who became parties to it, and, by signing it, bound themselves to refrain from enforcing their demands against the copartners. After the creditors were paid in full, the residue of the property transferred, if any, was to be returned to the copartners.
The trustee took possession and made an inventory of the property. Its value at original cost was $14,385.62. The indebtedness of the firm was $6,651.70. There was doubt as to whether the property would sell for enough to pay the debts in full. Plaintiffs borrowed $3,000 and deposited it in a bank in Blooming Prairie, to be used if needed to pay the creditors. Upon due notice, the trustee, on January 25, 1916, received bids for the property. There were eight bidders. Plaintiffs' bid was $10,000. The next highest bid was $9,000. Their bid was accepted and the assets sold to them. In part payment of the purchase price, the $3,000 deposit was turned over to the trustee, together with plaintiffs' demand note for the balance. They have since been in possession of the property and have conducted a general store at the same location and under the name formerly employed by the firm. Shortly after making the purchase, they gave their notes to the creditors, got back their demand note from the trustee, and have since paid practically all of the original indebtedness of the firm. The funds used for that purpose have been derived from the income of the store.
By his counterclaim defendant attacked the validity of the sale to plaintiffs, on the ground that he was induced to consent to the transfer to the trustee by false representations made by plaintiffs and relied on by him, to the effect that the copartnership was largely indebted, could not borrow money to pay the debts, and that it was necessary and for the best interests of the copartners to make an assignment for the benefit of their creditors. He asked for an accounting and judgment for $8,000.
The book account on which the action was brought showed debits of $957.77 against defendant and credits of $804. It was among the accounts of the firm which were assigned to plaintiffs when they made the purchase from the trustee.
The court found that no fraud or deception had been practiced on defendant, and that plaintiffs were entitled to judgment against him for the unpaid balance of the book account. In the course of the trial it appeared that the account had been paid after the action was begun. In denying the motion for a new trial, the court amended the findings and conclusion of law referring to the account, by striking out certain portions thereof. The finding that no fraud was practiced on defendant is amply supported by the evidence.
1. We first consider the legal effect of the trust agreement. Such an agreement is in substance a common law assignment for the benefit of creditors. Lucy v. Freeman, 93 Minn. 274, 101 N.W. 167. An assignment for the benefit of creditors, when made by the members of a copartnership, dissolves the partnership. Moody v. Rathburn, 7 Minn. 58 (89); Simmons v. Curtis, 41 Me. 373; McKelvy's Appeal, 72 Pa. 409; Davis v. Megroz, 55 N.J. Law, 427, 26 A. 1009; Wells v. Ellis, 68 Cal. 243, 9 P. 80; 30 Cyc. 655; Parsons (Theoph.), Part. *473. After dissolution, copartners occupy a fiduciary relation to one another in the winding up of the partnership affairs and the distribution of partnership effects. Hanson v. Metcalf, 46 Minn. 25, 48 N.W. 441; King v. Leighton, 100 N.Y. 386, 3 N.E. 594; Ehrmann v. Stitzel, 121 Ky. 751, 90 S.W. 275, 123 Am. St. 224. It is contended that in making the purchase from the trustee plaintiffs were buying property in which defendant had an interest, in view of the provision in the trust agreement that the residue of the property was to be returned to the copartners after the creditors were paid, and that by reason of this fact defendant is entitled to an accounting and to share in profits which plaintiffs may realize from their purchase. To sustain the contention, it is argued that one copartner is disqualified from purchasing firm property as this was purchased. Decisions of this court cited in support of the proposition are not directly in point. They state the general rule applicable to purchases of property made by one occupying a fiduciary relation to it or to those interested in it, Donahue v. Quackenbush, 62 Minn. 132, 64 N.W. 141; Gilbert v. Hewetson, 79 Minn. 326, 82 N.W. 655, 79 Am. St. 486, and to the right to profits realized by one copartner from a transaction involving the use of partnership funds. Church v. Odell, 100 Minn. 98, 110 N.W. 346; Treacy v. Power, 112 Minn. 226, 127 N.W. 936. There is no doubt about the rule, but in our opinion it has no application to the facts in the case at bar.
Where a partnership has been dissolved and the assets of the firm must be sold to pay its debts and wind up its business, the rule is that none...
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